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Aid Freeze, a Blow to Tanzania Economy

As foreign donors drag their feet on injecting badly needed cash into the government’s coffers, local analysts are increasingly worried that this will affect implementation of key development projects that require donor funding.

Donors – including the United Kingdom, Germany and the World Bank – are withholding $449 million out of $558 million pledged for the 2014/15 budget, pending a satisfactory outcome to investigations over corruption in the energy sector, IPS reported.

Senior government officials have been accused by the parliament of authorizing controversial payments of $122 million to Pan Africa Power Solutions Tanzania Limited (PAP), which claims to have bought a 70 percent share of the Independent Power Tanzania Limited (IPTL) – a private energy company contracted by the government to produce electricity.

“Many infrastructure development projects that require donor funding will probably stall due to this problem,” Benson Bana, a political analyst at Dar es Salaam University, told IPS. “Donors are keen to see their money is spent on intended objectives and government must learn a lesson to ensure that public funds are managed well.”

Projects

East Africa’s second largest economy after Kenya is currently implementing a myriad of projects that require donor funding in the energy and infrastructure sectors, such as construction of ports, roads and power plants under a $25.2 billion five-year development plan.

But the government said last year that the impending delay in the disbursement of aid funds may prompt it to shelve some critical projects until the next financial year.

IMF Objects

The international Monetary Fund (IMF) has added its voice to the ongoing standoff between Tanzania and foreign donors, saying that further delay in disbursement of aid would certainly affect the country’s economic performance.

“Performance was satisfactory through June, but has deteriorated since and risks have risen, stemming from delays in disbursements of donor assistance and external non-concessional borrowing, and shortfalls in domestic revenues,” the IMF said in a statement posted on its website in January 2015.

Tanzania is one of the biggest aid recipients in sub-Saharan Africa, with an annual aid inflow in grants and concessional loans ranging from 20 to 30 percent of its budget.

The move by donors to freeze aid over corruption concerns, said the IMF, is a stunning blow to the country’s economy.

“It will be critical to the business environment to address the governance issues raised by the IPTL case, which would also unlock donor assistance,” the IMF said.